05.10.202013:40 Forex Analysis & Reviews: Prospects for the growth of the pound

Markets are growing on expectations. There will be no breakthrough in the relationship between Britain and the EU over Brexit. Even with the illness of Donald Trump, the uncertainty associated with the US presidential election has increased. Nevertheless, the 3-month volatility of sterling fell to the lowest level since the beginning of September, and the GBP/USD pair returned above the base of the 29th figure after German Chancellor Angela Merkel said that a deal between London and Brussels is possible before the end of 2020. Investors increasingly believe in a favorable outcome of the negotiations and start buying the pound. Asset managers cut short positions in the British currency, and hedge funds follow the market.

The conversation between British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen was productive, according to both sides. Albion and the EU have agreed to work on unblocking the deal as part of Brexit and stressed that an agreement is possible. The main stumbling blocks are fishing, judicial protection mechanisms and state aid. EU chief negotiator Michel Barnier is gathering representatives of European countries to discuss issues related to fishing. There is progress and investors believe in a favorable solution to the problem. The GBP/USD quotes are growing, however, the situation may change at any moment.

A typical example is trading on October 1, when the pound first fell on news that Britain and the EU disagree on legal aid and that Brussels filed a lawsuit against London, but then rose on rumors of a compromise on state aid. Finally, after the EU representatives said that there was no progress in the negotiations, it collapsed again. Headlines about Brexit delay traders to enter longs for GBP/USD, but within a few minutes the situation changes to the opposite, and you need to get out of long positions. Is it worth trading the pound at all in such conditions?

Roller coaster by the pound

If you are betting on a breakthrough in relations between Britain and the EU, then of course yes. Sterling looks undervalued, its quotes are still full of risks of a fruitless Brexit, short positions of speculators are still inflated, so good news from the negotiating table will bring the GBP/USD quotes to 1.32-1.33. However, there are always two currencies in any pair, and high demand for the US dollar can make adjustments to the bulls' plans.

The uncertainty surrounding the presidential election in the United States increased even more after it became known that Donald Trump was infected with COVID-19. The head of the White House is full of optimism and is even ready to work in a clinic, but the fact that he is given oxygen and medications for serious patients suggests that not everything is as good as they try to imagine. The Republican's omission of the presidential campaign is good news for Democrats, with investors believing that a Joe Biden victory will weaken the US dollar.

Technically, a break of resistance at 1.300-1.3025 activates the "Shark" pattern with a target of 88.6%. It corresponds to the level of 1.3450. The recommendation is to "buy".

GBP/USD, the daily chart